Whether it’s a realistic perception or not, European investors have been piling into the United States real estate market over the last few days, seeing it as a safe harbor from the effects of the coronavirus.
Oakland, California-based Roofstock, a fin-tech company, has seen a 450% jump in traffic on its site from investors in Germany and a 100% increase from the United Kingdom.
Decreased competition, especially from cash-rich Chinese investors, could wind up creating some bargain multifamily opportunities for investors, particularly in Western states.
Additionally, the Fed’s quickly executed rate cut of 50 basis points could result in even more opportunities for investors. As the cost of borrowing money stays low or perhaps goes even lower, investors tend to take advantage of the increased savings.
Lower interest rates have a potent effect on real estate. Amid extreme market volatility, such as that experienced by the S&P over the last few days, commercial real estate could become more and more attractive.
It’s a sure thing that capitalization rates (the expected returns on investment properties) will be affected by the Fed’s actions.
However, low-interest rates don’t always produce more favorable cap rates, since there are several other factors involved.
There is, to be sure, a relationship between interest rates and cap rates. However, things such as the location and age of the property, the terms and structure of the lease, and the market and available inventory play significant roles in formulating cap rates as well.
In other words, don’t assume that cap rates will necessarily benefit from the Fed’s cuts. Regardless, 2020 could still turn out to be a stellar year for real estate investors, provided they stay calm and collected.
So, what should you do RIGHT NOW if you are considering investing in commercial real estate?
DON’T let coronavirus fears blind your eyes to some fantastic opportunities that will be popping up in the next few weeks and months. Remain calm, do your research, and don’t let your sound judgment get clouded by emotion.
DO find the absolute lowest rates for your loan. Rates can vary significantly from one lender to another. Be sure to do your homework and ferret out the very best loans for your unique situation.
DO partner with companies that have experience and a proven record of success, especially if you are looking to invest in multifamily properties. Over the past couple of years, there have been a lot of newcomers to the apartment syndication business. These new players may not have what it takes to bring you success during an economic downturn.
While there’s no doubt that the coronavirus will affect the world’s economy, it is also true that there will be opportunities to create wealth from chaos. Stay vigilant and informed, and you may be able to secure properties that might have been impossible to purchase just a few months ago.
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